Be it a wedding or surprise medical bill, home repair, or a huge outstanding amount on your credit card — a personal loan can come in handy to cover a variety of expenses. It is a convenient way to borrow small or large amounts of money from banks when you need it the most. Quick disbursal process usually within a day or two, and minimal paperwork have made personal loans a go-to option for many. Now, the question is how to get them cheap. Do remember the lower the interest rate is, the more you save while paying it back. And there are other charges such as processing fees and loan disbursal fees you need to take into account while finalising your bank. So, if you want to take a personal loan, here is how to get the best deal for you.
Improve your credit score
One of the best ways to get a lower interest rate on your personal loan is to improve your credit score before applying for a loan. A higher credit score is likely to fetch a lower interest rate on a personal loan as the bank will consider you as a less risky borrower. “As a personal loan is given without any collateral, the credit score of the borrowers plays an important criterion for a lender to decide on the interest rate, loan amount, and repayment terms. A high credit score results in better negotiation with lenders,” said Abhishek Kumar, a SEBI Registered Investment Advisor (RIA) and Founder of SahajMoney.
If you use a credit card, pay the bill in full on time. You should also clear the equated monthly installments (EMIs) of other loans, if any taken earlier, on time.
“Keep your credit record very clean. Do not let your payments become delinquent even by a few days. Even a small slippage can result in a big increase in lender risk estimates and therefore interest rates,” Prithvi Chandrasekhar, President – Risk and Analytics, InCred.
If you have a clean payment history, you will have a better chance to negotiate interest rates with the banks.
If you have some time to apply for a personal loan, start improving your credit score before submitting your loan application. Here are a few ways you can maintain a good credit score, as pointed out by many experts.
1) If you use credit cards or other borrowing applications to borrow money, pay your bills on time. It will help you to increase your credit score as your payment history accounts for a substantial part of your credit score.
2) Credit utilisation ratio is another major factor that is considered while calculating your credit score. The credit utilisation ratio is how much credit you have taken divided by the amount of credit that is available to you. As it denotes your dependency on credit money, experts advise borrowers to maintain a credit utilisation ratio within 30 per cent. So, if you use multiple credit cards or have another loan, keep track of how much money you are using on credit at present.
3) Avoid applying for multiple credit cards or personal loans at the same time. When you apply for a credit card or a loan, it is considered a hard inquiry. If there are too many hard inquiries within a short span of time, it will impact your credit score.
Use your salary account
If you are a salaried employee, use it to get a good deal on a personal loan. “As a personal loan is given based on an individual’s past credit history, availing a loan from a bank where one holds a salary account is quite beneficial. The lender already has access to your monthly income and withdrawal details so that makes it easier for a lender to disburse instant loans with minimum documentation. One can use this advantage by negotiating lower interest rates and terms of payment,” said Abhishek Kumar… Read More
Source By: economictimes
